ABB Turbo Systems Ltd

Activity Report 2010

Contents

Highlights in 2010 4/5

What to expect in 2011 6/7
Key figures 8/9
Outlook 2011 10
Organization 11

Editorial

Markets recovered
faster and better
than expected.
The year 2010 looked set to be one of steady recovery. In the event, the speed of
the upturn exceeded expectations. Order intake increased rapidly at the beginning
of the year and then stayed at a consistent plateau. This brought the welcome
problem of rapidly increasing production of new turbochargers and the equally wel-
come effect that the realignment measures we had initiated were not all necessary.
In sales terms, on new turbochargers we exceeded our budget by 60 %, and
though the effect was not as marked on the service side, we still had our best year
to date.

Our markets contributed to the recovery to very different extents, but we know our
applications. We were prepared for turbochargers for high- and medium-speed
engines to lead the way, and this is how it happened. The marine sector remained
difficult, which affects sales of turbochargers for low-speed engines most, followed
by medium-speed engines. Nonetheless, business developed better than we had
assumed as ship owners began to break even and building increased, but pressure
on prices was strong.

In this situation, the advantages of being involved in all the markets for large engine
turbochargers came to the fore. On the medium-speed side, there was strong
demand for diesel power stations as financing became available again and these
are on a much shorter construction lead time than ships. The shortest end product
lead times in our markets are of course in the high-speed sector. Both the heavy
off-highway vehicles and the stationary engines which use our turbochargers
showed strong growth and had an impact on our order intake and revenues.

The service business continued its upward trend and set records for both order
intake and revenues in 2010. This was based on the reorganizations we carried out,
our unrivaled customer proximity via our extensive service network, the compe-
tence of our service technicians and the high quality and availability of our original
ABB Turbocharging spare parts.

2
Likewise, there is good news to report on the product developments which will secure At 80 GW, the
our future on all time frames – short, medium and long term. The high efficiency
and high pressure ratios of our A100 generation of single stage turbochargers are
lower limit of global
enabling engine builders to meet IMO Tier II emissions limits at minimized fuel production of
consumption. Crucially, we are just as confident of having the solutions the engine turbocharged
industry will need for IMO Tier III with our Power2 two stage turbocharging, VCM
variable valve timing system and compact SCR systems. Together, they are set to shift
engine power was
our role to a supplier of cohesive engine systems with a common target as well as reached.
stand-alone products.

We can already report a good start into 2011. We have picked up where we left off
last year, and as demand for turbocharged engine power continues to grow we will
further strengthen our market position. On the service side, the programs we started
have increased effectiveness and the turbochargers added to our world population
by the high deliveries of the past few years are “coming of age” and starting to need
after-sales care. This represents one of our strongest chances for expansion in
2011 and beyond.

In sum, as 2011 unfolds we can say with some satisfaction that our business is
doing well at present and is well positioned for the future. The foundations are
the new products we are developing and the moves we have made in our sales,
service and production networks.

In all this, of course, the dependable commitment of our employees, the support
of our suppliers and, most important, the goodwill of our customers all around the
world are the indispensable foundations on which we can build our future. My
thanks in advance.

Daniel Arnet

3
Highlights in 2010
Leveraging recovering markets. Turning the need for
improved environmental compatibility into innovations.
Moving large engine technology forward.
Developing capacity to suit the market
The restructuring we started in 2009
was completed in 2010, a year in which
the highs and lows in turbocharger and
spares production were intensive and
tightly packed. The start of the year was
characterized by downturn measures
like revising capacity, equipment inven-
tories, and production space and build-
ings. Then, suddenly and surprisingly,
the new turbocharger business ramped
up strongly, especially in the second half
of the year. It was of course pleasant
that we were able to reassess the con-
tingencies and see available capacity fill
up again. But both we and our suppliers
had to make considerable – but highly
worthwhile – fast track efforts to keep up
with the increase in demand.
Against this exacting background we
nevertheless delivered the first four
of our new, largest A100 turbocharger
types on time to our customers.
4
A100 generation
In a fine display of our technical expert-
ise, 2010 saw three planned additions
to the A100 family of high pressure, high
efficiency turbochargers – the A180-L,
A185-L and A190-L – reach the market
right on schedule. An exciting aspect
was the 75.8 % efficiency recorded dur-
ing final testing of the A190-L, the highest
ever achieved.
This critical turbocharger characteristic,
together with the high pressure ratios of
the A100 generation, are the foundation
of the A100’s rapidly growing popularity.
During 2010 over 100 of our A100-L
turbochargers were contracted for slow
speed engines. The total of over 200 now
specified includes all sizes as well as
applications with VTG variable turbine
geometry.
This immediate customer acceptance is
excellent in view of the slow market for
2-stroke engines. It reflects how eagerly
customers had waited for turbochargers
that deliver the combination of compli-
ance with the now enacted IMO Tier II
limits on engine exhaust emissions and
minimized fuel consumption.
Ecology in focus
Further progress was made with two
stage turbocharging. Power2, as the
ABB Turbocharging solution is now
known, represents the next level in high
pressure turbocharging. It is an enabler
of the next generation of cleaner, more
powerful and more efficient combustion
engines.
In 2010 two gas engines featuring
Power2 were officially launched and a
pilot application in the field is meeting
expectations. The two stage turbo -
charged engines have higher efficiency,
higher power density and more stable
performance under unfavorable ambient
conditions. Together with lead customer
GE Jenbacher, we are pioneering new
engine technology which is already con-
firming its benefits economically, ecologi-
cally and in terms of engine performance.
Next steps
Further qualification of Power2 technol-
ogy is needed for diesel engine applica-
tions and corresponding testing is
underway. Designed to interact with
Power2 to gain additional impacts on
engine fuel consumption and emissions
are VCM valve control management
being developed with German partner
Schaeffler Technologies and compact
SCR, an on-engine selective catalytic
NOx reduction system being developed
with Swiss partner Hug Engineering.
Both VCM and compact SCR progressed
through their development stages. On a
test engine in Norway VCM demonstrated
its functionality and advantages com-
pared with other variable valve train sys-
tems. The NOx reduction potential of the
compact SCR system located between
the high and low pressure turbine of a
Power2 two stage turbocharging system
was demonstrated on a test engine in
Switzerland.
Together, Power2, the compact SCR
system and VCM form interacting NO x
reduction systems to assist our engine
builder customers to attain compliance
with the strict IMO Tier III NO x limits due
in 2016. They are set to change our role
and perspective to that of systems
provider to the large engine industry.
Service as an OEM competence Availability targets achieved
In 2010 our service network was further Meeting delivery became a special focus
optimized. Alexandria followed Suez as in 2010. The uneven ordering patterns
our second station in Egypt while our for new turbochargers, the speed of the
Stations in Cagua / Venezuela, Baku / recovery and resulting adjustments
Azerbaijan, Sydney /Australia and Auck- to the right sizing plan made reliable
land / New Zealand were closed. The scheduling challenging. Nevertheless,
sales.2010 program targeting improve- over the total production network
ments in efficiency and effectiveness the target of 95 % for availability was
within the network bore fruit in many attained. The service network func-
areas. One was more effective feedback tioned smoothly and parts availability
from the market via the technical advi- above the established 98 % benchmark
sors appointed under the program, was comfortably achieved.
bringing considerably faster resolution
of product issues.
Record sales and revenues proved that
the quality of our service is appreciated,
but we perceived an increase in copy
parts circulating in the market. Counter-
measures are being taken. Overall, we
are stressing the customer benefits of
service carried out by our highly quali-
fied technicians using our original parts.
Both the quality of our parts and the
training of our technicians embody the
technology, knowledge and expertise
available only to the OEM. Our message
is that they result in more economic
turbocharger care, especially in the long
term.
5
What to expect in 2011
The upturn is reaching the service business. Developments are
focused on IMO Tier III and beyond. Quality continues to
have highest priority. A new management team will take over
their duties.

Two years on
While sales of new turbochargers will
continue to recover as the world economy
improves, we can leverage the fuel
saving and operating flexibility benefits
of the A100 generation to grow faster
than our competitors. In the service
business, the turbochargers delivered in
the boom years will begin to “come of
age” and require maintenance, repair
and overhaul. We are thus planning and
preparing for a significant increase in
service orders. The investments and
projects of previous years like sales.2010
will also continue to pay off. The target
is to use after-sales offerings closely tai-
lored to customer needs to extend our
market share, especially in the servicing
of TPL and TPS turbochargers and in
the supply of spares for the VTR . . 4
generation. This is both a promise to our
customers and a declaration of intent to
fight those of our competitors trying to
gain market share using inferior, unau-
thorized copies of ABB Turbocharging
parts.

6
New horizons
Our overall focus is driven by the need
to improve the environmental compati-
bility of combustion engines. As a long-
standing technology leader with plans to
extend our portfolio, we will continue to
invest in products that lead to cleaner
engines.
In 2011 this means finalizing the devel-
opment of the A100. This will be signi-
fied by the release of the largest two
turbochargers with radial turbines, the
A150-M & A155-M, and the smallest
size for low speed 2-stroke engines,
the A165-L. Looking at our products
focusing specifically on IMO Tier III
emissions legislation, an emphasis will
be to win lead customers for our VCM
valve control management and compact
SCR products while also expanding our
Power2 market coverage. This will
include agreeing testing of two stage
turbocharging with additional customers
on further engines, and the first devel-
opment agreement with a customer for
VCM. The compact SCR concept will be
validated on-engine for use with both
distillate and heavy fuels.
Quality as our competitive edge
Quality is a constant challenge. As an
important element in the perceived
quality of our products and services,
on-time delivery will of course remain a
major emphasis in 2011. The bench-
marks have been set high – attaining
95 % across the whole production net-
work for new business and maintaining
the established 98 % minimum for spare
parts. In addition, less noticeable
aspects are under the quality spotlight,
as for example small blemishes on
paintwork, cosmetic damage to packag-
ing and or other imperfections. These
things must be taken seriously, because
as the number one in the market we
wish to set the standard even in the
small things that can affect our image.
Changes at the top
In the course of the year 2011, respon-
sibilities change hands in the ABB
Turbocharging business. Three manage-
ment committee members, Daniel Arnet,
Willy Kuhn and Bernhard Schönung
reach the age limit and retire from their
executive duties. These changes set in
motion a number of further moves at
senior management level. Overall
responsibility for the Business Unit is
assumed by Oliver Riemenschneider.
His previous position as manager of
sales, marketing and service is taken
over by Axel Kettmann. Rolf Schweizer
leaves his roles as senior manager of
new business and takes responsibility
for the worldwide service network. He is
replaced by Christoph Rofka, formerly
manager of new business in the medium-
speed engine segment.
The presidency of ABB Turbo Systems
Ltd, the national organization in Switzer-
land, is taken over by Urs Gribi. He
hands over leadership of technology,
research and development to Christian
Roduner, who thereby also assumes
responsibility for the Test Center.
Maurizio Boschetti will take over the
management of the Swiss producing
works and the global production net-
work.
In this way solutions have been found
which guarantee the necessary and
desirable elements of continuity and
smooth handover of responsibilities.
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Key figures 2010

TPS, TPC population TPL . . -A, TPL . . -C, TPR population TPL . . -B population

[units] [units] [units]

50000 8500 3000
45000 7650 2700
40000 6800 2400
35000 5950 2100
30000 5100 1800
25000 4250 1500
20000 3400 1200
15000 2550 900
10000 1700 600
5000 850 300
0 0 0
2000 2002 2004 2006 2008 2010 2000 2002 2004 2006 2008 2010 2000 2002 2004 2006 2008 2010

8
Our recovery in 2010 marked a satisfactory departure into
a new business cycle where demand is expected to grow more
sustainably. Revenues and especially order intake exceeded
budgets by far. As well as absorbing all the costs associated
with matching production to the available market, we invested
in two new generations of products.

New business Potentials to projects Investments in new equipment for

After living from business booked at
the height of the last business cycle, in
2010 we were able to refill our order
books, particularly with turbochargers
for high- and medium-speed engines.
Demand for turbocharger service grew
less rapidly but still resulted in record
levels of order intake and revenues.
These again justified our strong invest-
ments in the service network while also
validating our pragmatic, selective
approach to Service Station siting based
on economic sustainability.
In 2010 the strategic product develop- production and service amounted to
ment partnerships started in 2009 12.7 million CHF, likewise signaling our
and 2010 began to make their mark on intention to maintain our status as
our investments in R & D. Two distinct market and technology leader.
directions emerged: stand-alone turbo-
chargers for engine generations meeting
current emissions legislation and com-
plete systems of interacting technologies
addressing much stricter future regula-
tions. Our R & D investment level of
8.6 % from our revenues reflect this two-
pronged commitment to giving customers
the products they need now and in the
longer term.

Production
[GW]
[units] 26 Marine (units)
10000 24 Stationary (units)
9000 22 Traction (units)
20 Turbocharged engine power (GW)
8000
18
7000
16
6000 14
5000 12
4000 10
3000 8
6
2000
4
1000 2
0 0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
(All data refer to ABB Turbo Systems Ltd only)

9
Outlook 2011
The skills and dedication of our man-
agement and workforce have enabled
us to get the business back on course
for growth after a period of recession
and adjustments. Rapid progress with
our new technologies and the continu-
ing success of our established core
products and services reflect a business
in good shape and ready for an exciting
future.
Daniel Arnet, President
We are on the threshold of a paradigm
change, from a supplier of stand-alone
products to a supplier of interacting
systems. To maximize our opportunities
we must offer tailored solutions while
keeping feasibility in mind.
Oliver Riemenschneider,
Sales and Marketing
Many roads lead to Rome. This also
applies to IMO Tier III compliance. ABB
has the technological building blocks
and the know-how to enable our cus-
tomers to achieve this strict emissions
legislation.
Rolf Schweizer, New Turbochargers
10
Different customers have different needs.
Learning to understand this and using
the knowledge to develop tailored ser-
vice solutions will be what shapes our
future success.
Axel Kettmann, Service
Total commitment from the business
unit’s production network is the firm
foundation of the aspiration to be
number one in the production of turbo -
chargers and their spare parts.
Willy Kuhn, Production
The potentials for fuel saving, higher
power and lower emissions inherent to
the new products we are developing are
the essential ingredients for our cus-
tomers’ success. They allow them to
comply with legislation while at the
same time increasing their productivity
and profitability.
Urs Gribi, Technology
The integration of the Test Center into
the Engineering Division and the simpli-
fied processes closely aligned to this
new set up will allow us to qualify turbo -
chargers more efficiently and effectively.
Bernhard Schönung, Test Center
We have experienced turbulent times.
Nonetheless we have continued to
invest in product development and new
equipment. Our customers will benefit
from simultaneous reductions in fuel
consumption and emissions.
Darko Fux, Finance and Controlling
We are taking advantage of the present
momentum to develop our business
across all its disciplines while paying full
attention to every colleague’s personal
needs and resources.
Beat Kunz, Human Resources
Organization
as of December 31, 2010

Board of Directors
Veli-Matti Reinikkala Chairman of the Board, President ABB Process Automation
Daniel Arnet Delegate, ABB Turbo Systems Ltd
Jasmin Staiblin Board Member, President and Country Manager ABB Switzerland
Rajagopal Kannabiran Board Member, Country CFO, ABB Switzerland

Management Committee
Daniel Arnet President
Oliver Riemenschneider Sales and Marketing
Darko Fux Finance and Controlling
Urs Gribi Engineering
Willy Kuhn Production
Beat Kunz Human Resources
Bernhard Schönung Test Center

Auditors
Ernst & Young AG, Basel

Ownership
ABB Turbo Systems Ltd is a wholly owned subsidiary of ABB Switzerland Ltd, Baden / Switzerland

11
Contact

© 2011 ABB Turbo Systems Ltd, Baden / Switzerland

ABB Turbo Systems Ltd
Bruggerstrasse 71 a
CH-5401 Baden / Switzerland
Phone: +41 58 585 7777
Fax: +41 58 585 5144
E-mail: turbocharging@ch.abb.com

www.abb.com/turbocharging

CHTUS-1001-1103-800-EN